We may not always have the money we need to do certain things or purchase certain items. In such cases, individuals and businesses/firms/institutions seek financial assistance from lenders.

The process of lending or taking a loan occurs when a lender gives money to an individual or entity with a guarantee or based on trust that the recipient will repay the borrowed money with certain added benefits, such as an interest rate.

Types of Loans

There are different types of loans. Some of them are –

• Loan for Education – Education loans are financial instruments that assist borrowers in furthering their education. An undergraduate degree, a postgraduate degree, or any other diploma/certification course from a reputable institution/university may be pursued. To obtain the financing, you must have the admission pass issued by the institution. Both domestic and international courses are eligible for funding.

• Loan for Individuals – You can get a personal loan whenever you have a cash shortage. A personal loan can be used for anything from repaying an old debt, going on vacation, funding for a down payment on a house/car, medical emergencies, or purchasing large-ticket furniture or gadgets. Personal loans are granted based on the applicant’s previous relationship with the lender as well as their credit score.

• Home Mortgage – Home loans are intended to provide funds for the purchase of a house/flat, the construction of a house, the renovation/repair of an existing house, or the purchase of a plot for the construction of a house/flats. In this case, the lender will hold the property until the repayments are completed, at which point ownership will be transferred to the rightful owner.

How to Calculate Loan Eligibility?

The loan eligibility criteria differ depending on the type of loan you seek. In general, you can check your eligibility by using the simple criteria listed below.

• A good credit score
• Continual income flow
• At the time of entry, you must be between the ages of 23 and 60.
• A few assets, such as FDs, investments, real estate, and so on.
• A positive working relationship with your bank
• A track record of timely debt repayment

How to Check Home Loan Eligibility?

• Credit Rating – The lender will consider your credit score when deciding whether to proceed with your application or to reject it at the initial stage. This is especially true with regard to unsecured loans. Because a credit score represents a borrower’s credit history, the lender examines the borrower’s repayment history to determine whether the borrower can repay on time or will default on payments. The lender’s decision is based on the results of the necessary analysis.

• Income and Work Experience – Your monthly or annual income, as well as your employment history, are important factors in loan approval. The lender may or may not be convinced that you will be able to repay the loan based on your income and income stability in the form of consistent and stable work history. Even if you are self-employed, the lender assumes that your business has been running smoothly for a few years and that your turnover is satisfactory.

• Debt-to-Income Ratio – Not only does having a good income matter but so does your debt-to-income ratio. If you earn Rs.1 lakh per month and your debt repayment commitments exceed Rs.75,000, you will not be eligible for a new loan because you will need the remaining income to cover your domestic expenses. As a result, regardless of your income, you must have a low debt-to-income ratio so that lenders believe you have enough cash on hand each month to make the repayments as well as handle family expenses.

• Collateral – The lender may decide on the interest rate for your loan based on the collateral you provide and its current market value. Providing collateral makes the transaction more secure in the eyes of the lender, which may result in more trust and a lower interest rate. Unsecured loans are notorious for having a higher interest rate than secured loans.

• Payment in Advance – The money you’ve saved and your ability to stick to your savings plan for a down payment will increase the lender’s confidence in you. The lower the loan amount requirement, the higher the down payment.

Documentation Required

For Salaried Applicants 

• Application form with photograph
• Identity and address verification
• Bank account statement for the previous six months
• The most recent pay stub
• Form 16

Applicants who are Self-Employed

• Formal application with photograph
• Identity and address verification
• Bank account statement for the previous six months
• Business evidence
• Profile of the company
• Income tax returns (personal and business) for the previous three years
• Last three years’ profit/loss statements and balance sheets 

Criteria for Home Loan Eligibility

• Current Age and Remaining Working Years: The applicant’s age is a major factor in determining home loan eligibility. The maximum loan term is typically 30 years.
• Salaried individuals must be between the ages of 21 and 65.
• Individuals who work for themselves must be between the ages of 21 and 65.
• Minimum Salary: Rs 10,000 per month
• Minimum annual business income: Rs 2 lac
• The maximum loan term is 30 years.
• Financial Situation: The applicant’s current and future income has a significant impact on the loan amount.
• Credit History (Past and Present) and Credit Score: A clean repayment record is considered positive.
• Other financial obligations include existing liabilities such as a car loan, credit card debt, and so on.

How to Check Personal Loan Eligibility?

A personal loan is an unsecured loan that can be used to cover a wide range of expenses. Because no collateral is required to obtain this loan, the risk to lenders is higher than that of a secured loan. As a result, there are numerous factors that a lender considers when determining a prospective borrower’s eligibility for a personal loan.

Eligibility for Personal Loans is Influenced by several factors

The following are some important factors that lenders consider before granting a personal loan to an individual.

• Age: Most banks offer personal loans to people between the ages of 21 and 60. While older people may be eligible for a personal loan, such as a pension loan, the grant of such loans is subject to certain restrictions.

• Minimum Monthly Income: Most banks set a minimum monthly income of Rs. 15,000 for salaried professionals. Individuals with a minimum monthly income of Rs. 25,000 are preferred by banks. A gross annual income of at least Rs. 5 lakh is usually required for self-employed individuals to qualify for a personal loan.

• Work/business Experience: Many banks require salaried individuals to have at least two years of total work experience, with at least six months in the current organization, to qualify for a personal loan. To be eligible for an unsecured personal loan, self-employed individuals and professionals must have been in their current business for at least two years.

Eligibility Criteria for a Personal Loan for a Salaried Applicant

Salaried applicants, including doctors, lawyers, and chartered accountants, are eligible to apply for a personal loan. While the exact eligibility criteria for a personal loan vary from lender to lender, the following are some of the generic eligibility criteria that apply to personal loans for salaried individuals:

Eligible Age Group	21 years to 60 years
Minimum Net Monthly Income	Rs. 15,000
Minimum Total Work Experience	1 year
Minimum Work Exp. with the current organization	6 months
Minimum Prior Relationship with the lender	6 months

Criteria for Personal Loan Eligibility for Self-Employed Applicant

Most lenders permit self-employed applicants, including business owners and self-employed professionals such as doctors, architects, and others, to obtain a personal loan if they meet the applicable eligibility criteria. The following are some general personal loan eligibility requirements for self-employed applicants:

Eligible Age Group	25 years to 65 years
Minimum Annual Turnover	Rs. 15 lakh
Minimum Profit After Tax (Previous FY)	Rs. 2 lakh
Minimum Business Experience	3 years in current business
Minimum Prior Relationship with the lender	1 year

Conclusion

A bank loan allows you to repay whenever it is convenient for you, as long as the payments are regular and on time. In contrast to an overdraft, where all credit is deducted in one go.

Or a consumer credit card with a maximum limit that cannot be used all at once. Bank loans have certain benefits and should be looked at while making investment decisions.